How to Define a Payback Period

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A payback period is defined by the amount of time over which a loan or investment is recovered or paid back. Learn more about how payback periods allow investors to know when they can expect to get their money back with insight from a certified public accountant in this free video on accounting terms.

Part of the Video Series: Business & Accounting Terms
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Video Transcript

Now we're going to define a payback period. A payback period is the time over which a loan is repaid or in the context of an investment the period of time expected for the cost of the investment to be recovered. As an example, if we were to borrow 100,000 dollars from a bank for some business purpose and the period of the loan is 5 years, the payback period of that loan is 5 years. If we were to make an investment in a piece of equipment, the payback period for that equipment would be it's productive life say 5 years to recover the cost of that investment. End of story.

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